NRB Taskforce Recommends Revising Classification Criteria for Banks and Financial Institutions

A study committee formed by Nepal Rastra Bank has recommended revising the existing classification criteria of banks and financial institutions, stating that the current system is not effective. The Banking Sector Reform Taskforce has proposed categorizing institutions into first, second, and third classes based on indicators such as customer service quality, overall risk management assessments by the supervision department, regulatory actions taken by the central bank, and key financial health indicators including capital adequacy, asset quality, earnings, and liquidity. The report also suggests using data from the past five years for classification, assigning higher weight to recent performance (40%, 30%, 15%, 10%, and 5%).
The taskforce recommends completing the classification annually in the month of Shrawan and publishing the updated list publicly. It also proposes forming an independent classification committee led by a credible and experienced professional. Additionally, the report advises replacing labels like Class A, B, C, and D with terms such as commercial banks, development banks, finance companies, and microfinance institutions to avoid negative perceptions, which would require legal amendments. According to the taskforce, these reforms would encourage institutions to improve performance, strengthen self-regulation, reduce supervisory burden on the central bank, and ultimately contribute positively to Nepal’s financial sector and overall economy.